US-Iran updates: Iranian negotiators suspend high-stakes talks with US in Switzerland

Dhwani Mehta FXStreet

Here’s a brief recap of the key developments in the US-Iran geopolitical front that occurred over the weekend, especially after Iran closed the Strait of Hormuz on Saturday over Israel's attacks on Lebanon, and amid renewed peace talks in Switzerland.

Iranian negotiators suspended high-stakes talks with the United States (US) in Switzerland in response to a flurry of verbal threats issued by US President Donald Trump to strike Iran again.
However, before stalling the talks, the Guardian reported that “Iran reached a draft agreement over how the US will issue a waiver lifting sanctions on Iranian oil exports, one of the key preconditions before Iran will open talks on its nuclear file.”
“Iranian officials claimed the waivers would be issued soon, adding that progress had also been made on unfreezing Iranian assets in overseas bank accounts,” the Guardian said.
US and Iranian officials met in the presence of Qatari mediators. US Vice President JD Vance played down the impact of the Israeli attacks in Lebanon, saying progress had been made towards ending hostilities there.
In the second half of Sunday, Axios reported, citing a US diplomat, that both sides had made good progress on keeping the Strait of Hormuz open. The talks also focused on enforcing the ceasefire in Lebanon and the nuclear deal.
Trump threatened to restart the war with Iran on Sunday, in a post on Truth Social that read: "Iran must immediately stop their highly paid PROXIES in Lebanon from causing trouble. If they don't, we'll hit Iran very hard again, just like we did last week, only harder!!!"
Fox News reported that Trump had gone further in an interview, saying he had told Iranian officials if they closed the strait, "you won't have a country", and threatening to take over the waterway.
After two days of heavy Israeli strikes by Hezbollah on Israeli positions, there were no reports of major violence on Sunday.

Market implications

Risk-off flows are back in play at the weekly open on Monday, with the US S&P 500 futures, a risk barometer, down 0.30%. The US Dollar Index (DXY) and WTI are likely to find fresh demand on renewed US-Iran tensions.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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